The Welfare Effects of Vertical Integration in China’s Movie Industry
Lisa Xuejie Yi
American Economic Journal: Microeconomics (Forthcoming)
This paper investigates the welfare effects of vertical integration in China’s movie industry.
We leverage data covering all theaters and 423 popular movies in China during 2014-2018.
We find no evidence of integrated movies being foreclosed to rival theaters. Integrated
theaters show their movies for longer, allocate more screenings, and charge lower prices.
We estimate a model of consumers’ demand and theaters’ screening decisions. Integrated
theaters internalize a substantial fraction of their upstream companies’ profits. Vertical
integration both mitigates distortions from revenue-sharing contracts and steers demand
favoring integrated movies. Overall, vertical integration increases consumer surplus with
considerable heterogeneity across markets.